QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

OR

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number 001-36589

WILHELMINA INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware

74-2781950

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

200 Crescent Court, Suite 1400, Dallas, Texas

75201

(Address of principal executive offices)

(Zip Code)

(214) 661-7488

(Registrant’s telephone number, including area code)

n/a

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the
registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. [x] Yes [ ] No

Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). [x] Yes [ ] No

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ ]

Accelerated filer [ ]

Non-accelerated filer [ ]

Smaller reporting company [x]

Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [x] No

As of November 9, 2017, the registrant had 5,381,668 shares
of common stock outstanding.

Treasury stock, 1,090,370 at September 30, 2017 and December 31, 2016, at cost

(4,893

)

(4,893

)

Additional paid-in capital

87,748

87,336

Accumulated deficit

(57,065

)

(57,048

)

Accumulated other comprehensive income (loss)

35

(50

)

Total shareholders’ equity

25,890

25,410

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$

44,588

$

48,721

The accompanying notes are an integral part of these consolidated
financial statements

3

WILHELMINA INTERNATIONAL, INC. AND SUBSIDIARIES

STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

For the Three and Nine Months Ended September 30, 2017 and 2016

(In thousands, except per share data)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Revenues:

Revenues

$

18,712

$

20,880

$

56,120

$

64,512

License fees and other income

6

28

34

82

Total revenues

18,718

20,908

56,154

64,594

Model costs

13,265

14,888

39,910

45,952

Revenues net of model costs

5,453

6,020

16,244

18,642

Operating expenses:

Salaries and service costs

3,447

3,708

10,611

11,594

Office and general expenses

1,400

1,381

3,832

4,267

Amortization and depreciation

232

89

672

295

Corporate overhead

236

192

817

768

Total operating expenses

5,315

5,370

15,932

16,924

Operating income

138

650

312

1,718

Other income (expense):

Foreign exchange gain (loss)

(18

)

1

(54

)

8

Gain (loss) from unconsolidated affiliate

(2

)

5

(40

)

11

Interest expense

(31

)

(21

)

(88

)

(21

)

Revaluation of contingent liability

-

(30

)

-

(30

)

Total other income (expense)

(51

)

(45

)

(182

)

(32

)

Income before provision for income taxes

87

605

130

1,686

Provision for income taxes: (expense) benefit

Current

(57

)

(281

)

(182

)

(648

)

Deferred

(4

)

(97

)

35

(358

)

Income tax (expense)

(61

)

(378

)

(147

)

(1,006

)

Net income (loss)

$

26

$

227

$

(17

)

$

680

Other comprehensive income (expense):

Foreign currency translation income (expense)

20

(12

)

85

(50

)

Total comprehensive income

46

215

68

630

Basic net income (loss) per common share

$

0.00

$

0.04

$

0.00

$

0.12

Diluted net income (loss) per common share

$

0.00

$

0.04

$

0.00

$

0.12

Weighted average common shares outstanding-basic

5,382

5,586

5,382

5,716

Weighted average common shares outstanding-diluted

5,382

5,637

5,382

5,768

The accompanying notes are an integral part of these consolidated
financial statements

4

WILHELMINA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW

For the Nine Months Ended September 30, 2017 and 2016

(In thousands)

(Unaudited)

Nine Months Ended

September 30,

2017

2016

Cash flows from operating activities:

Net income:

$

(17

)

$

680

Adjustments to reconcile net income to net cash used in operating activities:

Amortization and depreciation

672

295

Share based payment expense

412

253

Deferred income taxes

(35

)

358

Contingent liability to seller

(97

)

30

Bad debt expense

128

40

Changes in operating assets and liabilities:

Accounts receivable

276

(4,832

)

Prepaid expenses and other current assets

560

(199

)

Other assets

49

108

Due to models

(3,242

)

2,585

Accounts payable and accrued liabilities

(865

)

1,017

Net cash (used in) provided by operating activities

(2,159

)

335

Cash flows from investing activities:

Purchases of property and equipment

(600

)

(1,118

)

Net cash used in investing activities

(600

)

(1,118

)

Cash flows from financing activities:

Purchases of treasury stock

-

(2,775

)

Proceeds from term loan

-

2,730

Repayment of term loan

(374

)

-

Net cash used in financing activities

(374

)

(45

)

Foreign currency effect on cash flows:

85

(50

)

Net change in cash and cash equivalents:

(3,048

)

(878

)

Cash and cash equivalents, beginning of period

5,688

4,556

Cash and cash equivalents, end of period

$

2,640

$

3,678

Supplemental disclosures of cash flow information:

Cash paid for interest

$

74

$

21

Cash refund of income taxes

$

87

$

320

The accompanying notes are an integral part of these consolidated
financial statements

5

WILHELMINA INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

The interim consolidated financial statements
included herein have been prepared by Wilhelmina International, Inc. (together with its subsidiaries, "Wilhelmina" or
the "Company") without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Although
certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to those rules
and regulations, all adjustments considered necessary in order to make the consolidated financial statements not misleading have
been included. In the opinion of the Company’s management, the accompanying interim unaudited consolidated financial
statements reflect all adjustments, of a normal recurring nature, that are necessary for a fair presentation of the Company’s
consolidated financial position, results of operations and cash flows for the periods presented. These interim unaudited consolidated
financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included
in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016. Results of operations for the
interim periods are not necessarily indicative of results that may be expected for any other interim periods or the full fiscal
year.

Note 2. Business

The primary business of Wilhelmina is fashion
model management. These business operations are headquartered in New York City. The Company’s predecessor was founded in
1967 by Wilhelmina Cooper, a renowned fashion model, and became one of the oldest, best known and largest fashion model management
companies in the world. Since its founding, Wilhelmina has grown to include operations located in Los Angeles, Miami, Chicago and
London, as well as a network of licensees in various local markets in the U.S. and several international markets. Wilhelmina provides
traditional, full-service fashion model and talent management services, specializing in the representation and management of models,
entertainers, artists, athletes and other talent, to various clients, including retailers, designers, advertising agencies, print
and electronic media and catalog companies.

Note 3. New Accounting Standards

Accounting Standard Update (“ASU”)
2015-17, Income Taxes - Balance Sheet Classification of Deferred Taxes, requires deferred tax assets and liabilities to be netted
and classified as non-current in the consolidated balance sheet. Wilhelmina retrospectively adopted the new accounting standard
on January 1, 2017. The impact of the change resulted in the netting of deferred tax assets and liabilities and classification
of all deferred taxes as non-current.

Note 4. Foreign Currency Translation

The functional currency of London is the British
Pound. Assets and liabilities are translated into U.S. dollars at the exchange rates in effect at each balance sheet date, revenues
and expenses are translated at average monthly exchange rates and resulting translation gains or losses are accumulated in other
comprehensive income as a separate component of shareholders’ equity.

Note 5. Line of Credit

The Company has a credit agreement with Amegy
Bank providing a $4.0 million revolving line of credit and up to a $3.0 million term loan which could be drawn through October
24, 2016. The revolving line of credit is subject to a borrowing base derived from 80% of eligible accounts receivable (as defined)
and the Company’s minimum net worth covenant of $20.0 million. The revolving line of credit bears interest at prime plus
0.5% payable monthly. As of September 30, 2017, the Company had a $0.2 million irrevocable standby letter of credit outstanding
under the revolving line of credit and had additional borrowing capacity of $1.5 million. The revolving line of credit expires
on October 24, 2018.

On August 16, 2016, the Company drew $2.7 million
of the term loan and used the proceeds to fund the purchase of shares of its common stock. The term loan bears interest at 4.5%
per annum and is payable in monthly payments of interest only until November 2016, followed by 47 equal monthly payments of principal
and interest computed on a 60-month amortization schedule and a final payment of principal and interest due on October 24, 2020.

On May 4, 2017, the Company entered into a
Seventh Amendment to Credit Agreement with Amegy Bank reducing the Company’s fixed charge coverage ratio through
December 31, 2017. The Company obtained a waiver from Amegy Bank of its failure to satisfy the fixed coverage ratio for the
quarter ended June 30, 2017. On August 1, 2017, the Company entered into an Eighth Amendment to Credit Agreement with Amegy
Bank eliminating the requirement to test the fixed charge coverage ratio for the quarter ended September 30, 2017.

The revolving line of credit with Amegy expired
by its terms on October 24, 2017. On November 8, 2017, the Company and Amegy extended the revolving line of credit on substantially
the same terms for one year until October 24, 2018.

6

Note 6. Commitments and Contingencies

On October 24, 2013, a putative class action
lawsuit was brought against the Company by former Wilhelmina model Alex Shanklin and others (the “Shanklin Litigation”),
in New York State Supreme Court (New York County) by the same lead counsel who represented plaintiffs in a prior, now-dismissed
action brought by Louisa Raske (the “Raske Litigation”). The claims in the Shanklin Litigation initially included
breach of contract and unjust enrichment allegations arising out of matters similar to the Raske Litigation, such as the handling
and reporting of funds on behalf of models and the use of model images. Other parties named as defendants in the
Shanklin Litigation include other model management companies, advertising firms, and certain advertisers. On January 6, 2014,
the Company moved to dismiss the Amended Complaint in the Shanklin Litigation for failure to state a claim upon which relief can
be granted and other grounds, and other defendants also filed motions to dismiss. On August 11, 2014, the court denied the
motion to dismiss as to Wilhelmina and other of the model management defendants. Further, on March 3, 2014, the judge assigned
to the Shanklin Litigation wrote the Office of the New York Attorney General bringing the case to its attention, generally
describing the claims asserted therein against the model management defendants, and stating that the case “may involve matters
in the public interest.” The judge’s letter also enclosed a copy of his decision in the Raske Litigation, which
dismissed that case. Plaintiffs retained substitute counsel, who filed a Second and then Third Amended Complaint. Plaintiffs’
Third Amended Complaint asserts causes of action for alleged breaches of the plaintiffs' management contracts with the defendants,
conversion, breach of the duty of good faith and fair dealing, and unjust enrichment. The Third Amended Complaint also alleges
that the plaintiff models were at all relevant times employees, and not independent contractors, of the model management defendants,
and that defendants violated the New York Labor Law in several respects, including, among other things, by allegedly failing to
pay the models the minimum wages and overtime pay required thereunder, not maintaining accurate payroll records, and not providing
plaintiffs with full explanations of how their wages and deductions therefrom were computed. The Third Amended Complaint seeks
certification of the action as a class action, damages in an amount to be determined at trial, plus interest, costs, attorneys’
fees, and such other relief as the court deems proper. On October 6, 2015, Wilhelmina filed a motion to dismiss as to most of the
plaintiffs’ claims, and oral argument on the motion was heard by the Court in June 2016. The Court entered a decision
granting in part and denying in part Wilhelmina’s motion to dismiss on May 26, 2017. The Court (i) dismissed three of the
five New York Labor Law causes of action, along with the conversion, breach of the duty of good faith and fair dealing and unjust
enrichment causes of action, in their entirety, and (ii) permitted only the breach of contract causes of action, and some plaintiffs’
remaining two New York Labor Law causes of action to continue, within a limited time frame. The plaintiffs and Wilhelmina have
appealed the decision. The parties appeared before the Court for a status conference on July 18, 2017, and the Court directed
the defendants to answer the Third Amended Complaint by August 16, 2017. Wilhelmina filed its Answer to the Third Amended
Complaint on that date, and discovery in this action is continuing. The Company believes the claims asserted in the
Third Amended Complaint are without merit, and intends to continue to vigorously defend the action.

On June 6, 2016, another putative class action
lawsuit was brought against the Company by former Wilhelmina model Shawn Pressley and others (the “Pressley Litigation”),
in New York State Supreme Court (New York County) by the same counsel representing the plaintiffs in the Shanklin Litigation, and
asserting identical, although more recent, claims as those in the Shanklin Litigation. On June 14, 2016, the Court stayed
all proceedings in the Pressley Litigation until a decision was issued on the motion to dismiss in the Shanklin Litigation. At
the court conference on July 18, 2017 (mentioned above), the judge directed the plaintiffs to file an amended complaint in the
Pressley Litigation, if any, by August 16, 2017, and directed the defendants to move against or answer such amended complaint by
September 29, 2017. The Amended Complaint, asserting essentially the same types of claims as in the Shanklin action
was filed on August 16th, and Wilhelmina filed a motion to dismiss the Amended Complaint on September 29, 2017. Briefing
on the motion to dismiss is continuing, and the motion is scheduled to be submitted to the Court on November 16, 2017. Discovery
is proceeding in this case. The Company believes the claims asserted in the Pressley Litigation are without merit, and intends
to vigorously defend the action.

In addition to the legal proceedings disclosed
herein, the Company is also engaged in various legal proceedings that are routine in nature and incidental to its business. None
of these routine proceedings, either individually or in the aggregate, are believed likely, in the Company's opinion, to have a
material adverse effect on its consolidated financial position or its results of operations.

Note 7. Income Taxes

Generally, the Company’s combined effective
tax rate is high relative to reported net income as a result of certain amounts of amortization and depreciation expense, stock
based compensation, and corporate overhead not being deductible and income being attributable to certain states in which it operates.
In recent years, the majority of taxes paid by the Company were state taxes, not federal taxes. The Company operates in four states
which have relatively high tax rates: California, New York, Illinois, and Florida. As of September 30, 2017, the Company had federal
income tax loss carryforwards of $1.5 million.

7

Note
8. Shareholder Equity

During 2012, the Board of Directors authorized
a stock repurchase program whereby the Company could repurchase up to 500,000 shares of its outstanding common stock. During 2013,
the Board of Directors renewed and extended the Company’s share repurchase authority to enable it to repurchase up to an
aggregate of 1,000,000 shares of common stock. On August 12, 2016, the Board of Directors increased by an additional 500,000 shares
the number of shares of the Company’s common stock which may be repurchased under its stock repurchase program to an aggregate
of 1,500,000 shares. The shares may be repurchased from time to time in the open market or through privately negotiated transactions
at prices the Company deems appropriate. The program does not obligate the Company to acquire any particular amount of common stock
and may be modified or suspended at any time at the Company’s discretion.

From 2012 through September 30, 2017, the Company
has repurchased 1,090,370 shares of Common Stock at an average price of approximately $4.49 per share, for a total of approximately
$4.9 million in repurchases under the stock repurchase program. No shares were repurchased under the stock repurchase program during
the first nine months of 2017.

Note 9. Common Stock

On July 7, 2017, the Company filed with the
Delaware Secretary of State a Certificate of Amendment of its Restated Certificate of Incorporation. As approved by shareholders
at the Annual Meeting held June 13, 2017, the Certificate of Amendment eliminated any class of preferred stock from the shares
of capital stock the Company is authorized to issue and decreased the number of shares of common stock the Company is authorized
to issue from 12,500,000 shares to 9,000,000 shares.

Note 10. Related Parties

The Executive Chairman of the Company, Mark
E. Schwarz, is also the chairman, chief executive officer and portfolio manager of Newcastle Capital Management, L.P. (“NCM”).
NCM is the general partner of Newcastle Partners L.P. (“Newcastle”), which is the largest shareholder of the Company.
James Dvorak (Managing Director at NCM) also serves as director of the Company.

The Company’s corporate headquarters are
located at 200 Crescent Court, Suite 1400, Dallas, Texas 75201, which are also the offices of NCM. The Company occupies a portion
of NCM space on a month-to-month basis at $2.5 thousand per month, pursuant to a services agreement entered into between the parties.
Pursuant to the services agreement, the Company receives the use of NCM’s facilities and equipment and accounting, legal
and administrative services from employees of NCM. The Company incurred expenses pursuant to the services agreement totaling approximately
$7.5 thousand and $22.5 thousand for the three and nine months ended both September 30, 2017 and 2016. The Company did not owe
NCM any amounts under the services agreement as of September 30, 2017.

The Company previously owned an
unconsolidated 50% interest in Wilhelmina Kids & Creative Management LLC (“Kids”), a New York City-based
modeling agency that specialized in representing child models/talents, from newborns to children 14 years of age. On December
9, 2016, the owners of Kids agreed to dissolve Kids and ceased related business operations of Kids. On March 1, 2017,
the Company paid $0.1 million to another owner of Kids in accordance with the December 9, 2016 agreement to liquidate the
enterprise. As a result, Wilhelmina no longer maintains a child models division.

Note 11. Subsequent Events

On November 8, 2017, the Company and Amegy extended the revolving
line of credit on substantially the same terms for one year until October 24, 2018

8

Item 2.Management’s Discussion and Analysis
of Financial Condition and Results of Operations.

The following is a discussion of the interim
unaudited consolidated financial condition and results of operations for the Company and its subsidiaries for the three and nine
months ended September 30, 2017 and 2016. It should be read in conjunction with the financial statements of the Company, the
notes thereto and other financial information included elsewhere in this report, and the Company’s Annual Report on Form
10-K for the year ended December 31, 2016, as amended.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains
certain “forward-looking” statements as such term is defined in Section 27A of the Securities Act of 1933, as amended,
Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation
Reform Act of 1995. Such forward looking statements relating to the Company and its subsidiaries are based on the beliefs of the
Company’s management as well as information currently available to the Company’s management. When used in
this report, the words “anticipate,” “believe,” “estimate,” “expect” and “intend”
and words or phrases of similar import, as they relate to the Company or Company management, are intended to identify forward-looking
statements. Such statements are subject to current risks, uncertainties and assumptions related to certain factors including,
without limitation, competitive factors, general economic conditions, the interest rate environment, governmental regulation and
supervision, seasonality, changes in industry practices, one-time events and other factors described herein and in other filings
made by the Company with the SEC. Should any one or more of these risks or uncertainties materialize, or should any
underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed,
estimated, expected or intended. The Company does not undertake any obligation to publicly update these forward-looking
statements. As a result, you should not place undue reliance on these forward-looking statements.

OVERVIEW

The
Company’s primary business is fashion model management and complementary business activities. The business of talent management
firms, such as Wilhelmina, depends heavily on the state of the advertising industry, as demand for talent is driven by Internet,
print and television advertising campaigns for consumer goods and retail clients. Wilhelmina believes it has strong brand recognition
which enables it to attract and retain top agents and talent to service a broad universe of clients. In order to take advantage
of these opportunities and support its continued growth, the Company will need to continue to successfully allocate resources and
staffing in a way that enhances its ability to respond to new opportunities. The Company continues to focus on tightly managing
costs, recruiting top agents when available, and scouting and developing new talent.

Although Wilhelmina has a large and diverse
client base, it is not immune to global economic conditions. The Company closely monitors economic conditions, client spending,
and other industry factors and continually evaluates opportunities to increase its market share and further expand its geographic
reach. There can be no assurance as to the effects on Wilhelmina of future economic circumstances, client spending patterns,
client creditworthiness and other developments and whether, or to what extent, Wilhelmina’s efforts to respond to them will
be effective.

Trends and Opportunities

The Company expects that the combination of
Wilhelmina’s main operating base in New York City, the industry’s capital, with the depth and breadth of its talent
pool and client roster and its diversification across various talent management segments, together with its geographical reach,
should make Wilhelmina’s operations more resilient to industry changes and economic swings than those of many of the smaller
firms operating in the industry. Similarly, in the segments where the Company competes with other leading full-service agencies,
Wilhelmina competed successfully during the first nine months of 2017.

With total annual advertising expenditures on
major media (newspapers, magazines, television, cinema, outdoor and Internet) exceeding approximately $187 billion in recent years,
North America is by far the world’s largest advertising market. For the fashion talent management industry, including
Wilhelmina, advertising expenditures on magazines, television, Internet and outdoor are of particular relevance.

In recent quarters, traditional retail clients
in the fashion and beauty industry have had increased competition from digital, social, and new media, reducing their budgets for
advertising and model talent. Wilhelmina reviews the mix of talent and resources available to best operate in the changing environment.

9

Strategy

Management’s strategy is to increase value to shareholders
through the following initiatives:

Due to the increasing ubiquity of the Internet
as a standard business tool, the Company has increasingly sought to harness the opportunities of the Internet and other digital
media to improve its communications with clients and to facilitate the effective exchange of fashion model and talent information. The
Company continues to make significant investments in technology (including developing in-house art and social media departments)
in pursuit of gains in efficiency and better communications with clients. At the same time, the Internet presents challenges
for the Company, including (i) the cannibalization of traditional print media businesses, and (ii) pricing pressures
with respect to digital media photo shoots and client engagements.

In January 2015, the Company purchased 100%
of the outstanding shares of Union Models Management Ltd. in London and renamed it Wilhelmina London Limited (“London”).
The strategic acquisition of London established a footprint for the Company and the brand in Western Europe. London also serves
as a base of operations to service the Company’s European clients, and as a new talent development office for European models
and artists.

In September 2016, Wilhelmina opened a Chicago
office to better provide models and talents with direct access to clients in the mid west region of the United States.

Key Financial Indicators

The key financial indicators that the Company
reviews to monitor its business are gross billings, revenues, model costs, operating expenses and cash flows.

The Company analyzes revenue by reviewing the
mix of revenues generated by the different “boards” (each a specific division of the fashion model management operations
which specializes by the type of model it represents (Women, Men, Artist, Showroom, Curve, Celebrity, etc.)) by geographic locations
and from significant clients. Wilhelmina has three primary sources of revenue: (i) gross billings are revenues from principal
relationships where the gross amount billed to the client is recorded as revenue when earned and collectability is reasonably assured;
(ii) revenues from agent relationships where commissions paid by models as a percentage of their gross earnings are recorded as
revenue when earned and collectability is reasonably assured; and (iii) separate service charges, paid by clients in addition to
the booking fees, which are calculated as a percentage of the models’ booking fees and are recorded as revenues when earned
and collectability is reasonably assured. See “Critical Accounting Policies - Revenue Recognition.” Gross billings
are an important business metric that ultimately drive profits and cash flows. Model costs represents costs paid to model and artist
talent and to mother agents relating to photoshoots and other jobs booked by Wilhelmina.

Wilhelmina provides professional services. Therefore,
salary and service costs represent the largest part of the Company’s operating expenses. Salary and service costs are
comprised of payroll and related costs and travel, meals and entertainment (“T&E”) to deliver the Company’s
services and to enable new business development activities.

10

Analysis of Consolidated Statements of Operations and Service Revenues

(in thousands)

Three Months Ended

Nine Months Ended

Sept 30

Sept 30

% Change

Sept 30

Sept 30

% Change

2017

2016

2017 vs 2016

2017

2016

2017 vs 2016

Service revenues

18,712

20,880

(10.4

%)

56,120

64,512

(13.0

%)

License fees and other income

6

28

(78.6

%)

34

82

(58.5

%)

TOTAL REVENUES

18,718

20,908

(10.5

%)

56,154

64,594

(13.1

%)

Model costs

13,265

14,888

(10.9

%)

39,910

45,952

(13.1

%)

REVENUES NET OF MODEL COSTS

5,453

6,020

(9.4

%)

16,244

18,642

(12.9

%)

GROSS PROFIT MARGIN

29.1

%

28.8

%

28.9

%

28.9

%

Salaries and service costs

3,447

3,708

(7.0

%)

10,611

11,594

(8.5

%)

Office and general expenses

1,400

1,381

1.4

%

3,832

4,267

(10.2

%)

Amortization and depreciation

232

89

160.7

%

672

295

127.8

%

Corporate overhead

236

192

22.9

%

817

768

6.4

%

OPERATING INCOME

138

650

(78.8

%)

312

1,718

(81.8

%)

OPERATING MARGIN

0.7

%

3.1

%

0.6

%

2.7

%

Foreign exchange gain (loss)

(18

)

1

*

(54

)

8

*

Gain (loss) from unconsolidated subsidiary

(2

)

5

*

(40

)

11

*

Interest Expense

(31

)

(21

)

47.6

%

(88

)

(21

)

319.0

%

Revaluation of contingent liability

-

(30

)

*

-

(30

)

*

INCOME BEFORE INCOME TAXES

87

605

(85.6

%)

130

1,686

(92.3

%)

Income tax expense

(61

)

(378

)

(83.9

%)

(147

)

(1,006

)

(85.4

%)

Effective tax rate

70.1

%

62.5

%

113.1

%

59.7

%

NET (LOSS) INCOME

26

227

(88.5

%)

(17

)

680

(102.5

%)

* Not Meaningful

Service Revenues

The Company’s service revenues fluctuate
in response to its clients’ willingness to spend on advertising and the Company’s ability to have the desired talent
available. The decrease of 10.4% and 13.0% for the three and nine months ended September 30, 2017, when compared to the three
and nine months ended September 30, 2016, was primarily due to a decrease in core model bookings. The decrease in core model bookings
in United States was partially offset by an increase in core model bookings in the London office, bookings from the Aperture division
and bookings from the Celebrity division.

License Fees and Other Income

License fees and other income include management
and administrative services fees, from an unconsolidated subsidiary, franchise revenues from independently owned model agencies
that use the Wilhelmina trademark, and various services provided by the Company. License fees decreased by 78.6% and 58.5% for
the three and nine months ended September 30, 2017, when compared to three and nine months ended in September 30, 2016. The decrease
was primarily due to ending of licensing agreements with affiliates.

Gross Profit Margin

Gross profit margin increased by 0.3% for the
three months ended September 30, 2017, when compared to the three months ended September 30, 2016 primarily due to higher recovery
of model chargebacks, an increase in higher margin celebrity revenue, and a decrease in client reimbursable expenses in 2017. For
the nine months ended September 30, 2017, when compared to the nine months ended September 30, 2016, the gross profit margin remained
relatively unchanged.

Salaries and Service Costs

Salaries and service costs consist of payroll
related costs and T&E required to deliver the Company’s services to its clients and talents. The decrease in salaries
and service costs of 7.0% and 8.5% for the three and nine months ended September 30, 2017, when compared to the three and nine
months ended September 30, 2016 was primarily due to severance paid to the Company’s former Chief Executive Officer and another
employee in 2016, changes in personnel to better align the number of employees at each Wilhelmina office with the needs of each
geographic region, and more effective management of T&E during the first nine months of 2017.

11

Office and General Expenses

Office and general expenses consist of office
and equipment rents, advertising and promotion, insurance expenses, administration and technology cost. These costs are less
directly linked to changes in the Company’s revenues than are salaries and service costs. The increase in office and
general expenses of 1.4% for the three months ended September 30, 2017 when compared to the three months ended September 30, 2016,
was primarily due to costs associated with the Company’s 50th anniversary in 2017 and higher bad debt expense. For the nine
months ended September 30, 2017, when compared to the nine months ended in ended September 30, 2016, the decrease of 10.2% was
primarily due to $233 thousand related to the recruiting of the Company’s Chief Executive Officer and Chief Financial Officer
and $160 thousand of non-income tax expenses that were incurred during the first nine months of 2016.

Amortization and Depreciation

Amortization and depreciation expense is incurred
with respect to certain assets, including computer hardware, software, office equipment, furniture, and other intangibles. During
the three and nine months ended September 30, 2017, depreciation and amortization expense increased by 160.7% and 127.8% compared
to the same periods of the prior year, primarily related to the Company’s new accounting software being placed in service
during the fourth quarter of 2016. Fixed asset purchases (mostly related to computer equipment and technology) totaled approximately
$122 thousand and $600 thousand during the three months and nine months ended September 30, 2017, compared to $367 thousand and
$1,118 thousand for the three and nine months ended September 30, 2016.

Corporate Overhead

Corporate overhead expenses include director
and executive officer compensation, insurance, legal, audit and professional fees, corporate office rent and travel costs. Corporate
overhead increased by 22.9% and 6.4% for the three and nine months ended September 30, 2017 respectively, compared to the three
and nine months ended September 30, 2016. The increase was primarily due to increase in professional services fees and an increase
in corporate travel costs.

Operating Margin

Operating margin decreased by 2.4% and 2.1%
for the three and nine months ended September 30, 2017, when compared to the three and nine months ended September 30, 2016, primarily
due to decreases in revenues outpacing reductions in operating expenses.

Foreign Currency Translation

The Company realized $18 thousand and $54 thousand
of foreign currency exchange loss during the three and nine months ended September 30, 2017, as compared to a gain of $1 thousand
and $8 thousand during the three and nine months ended September 30, 2016. The foreign currency gain and loss is due to fluctuations
in currencies primarily from Great Britain and Europe.

Unconsolidated Subsidiary

The losses from an unconsolidated subsidiary
for the three and nine months ended September 30, 2017, compared to gains for the same periods of the prior year, are the result
of the dissolution of the unconsolidated subsidiary and discontinuation of its operations.

Interest Expense

Interest expense for the three and nine months
ended September 30, 2017 was primarily attributable to accrued interest on a term loan drawn during the third quarter of 2016.
See, “Liquidity and Capital Resources.”

Income Taxes

Generally, the Company’s combined effective
tax rate is high relative to reported net income as a result of certain amounts of amortization expense and corporate overhead
not being deductible and income attributable to states in which it operates. Currently, the majority of taxes being paid by the
Company are state taxes, not federal taxes. The Company operates in four states which have relatively high tax rates: California,
New York, Illinois and Florida.

12

Liquidity and Capital Resources

The Company’s primary liquidity needs
are for working capital associated with performing services under its client contracts. Generally, the Company incurs significant
operating expenses with payment terms shorter than its average collections on billings.

The Company’s cash balance decreased to
$2.6 million at September 30, 2017, from $5.7 million at December 31, 2016. For the nine months ended September 30, 2017, cash
balances decreased primarily as a result of cash flows used by operations of $2.2 million, capital expenditures of $0.6 million,
and $0.4 million for repayment on the Amegy Bank term loan.

The Company’s use of cash for operating
activities included employee bonus payments, payment of accrued non-income taxes, final payment to the former London owner, final
payment to another owner of a dissolved unconsolidated subsidiary, and payments due to models/talents during the first nine months
of 2017.

The Company has a credit agreement with Amegy
Bank providing a $4.0 million revolving line of credit and up to a $3.0 million term loan which could be drawn through October
24, 2016. The revolving line of credit is subject to a borrowing base derived from 80% of eligible accounts receivable (as defined)
and the Company’s minimum net worth covenant of $20.0 million. The revolving line of credit bears interest at prime plus
0.5% payable monthly. As of September 30, 2017, the Company had a $0.2 million irrevocable standby letter of credit outstanding
under the revolving line of credit and had additional borrowing capacity of $1.5 million. The revolving line of credit expires
on October 24, 2018.

On August 16, 2016, the Company drew $2.7 million
of the term loan and used the proceeds to fund the purchase of shares of its common stock. The term loan bears interest at 4.5%
per annum and is payable in monthly payments of interest only until November 2016, followed by 47 equal monthly payments of principal
and interest computed on a 60-month amortization schedule and a final payment of principal and interest due on October 24, 2020.

On May 4, 2017, the Company entered into a Seventh
Amendment to Credit Agreement with Amegy Bank reducing the Company’s fixed charge coverage ratio through December 31, 2017.
The Company obtained a waiver from Amegy Bank of its failure to satisfy the fixed coverage ratio for the quarter ended June 30,
2017. On August 1, 2017, the Company entered into an Eighth Amendment to Credit Agreement with Amegy Bank eliminating the requirement
to test the fixed charge coverage ratio for the quarter ended September 30, 2017.

The Company believes its cash on hand combined
with cash from operations and the availability under the revolving credit facility will be sufficient to fund operations for the
next 12 months.

Off-Balance Sheet Arrangements

As of September 30, 2017, the Company had outstanding
a $0.2 million irrevocable standby letter of credit under the Company’s revolving credit facility with Amegy Bank. The letter
of credit serves as security under the lease relating to the Company’s office space in New York City that expires February
2021.

Effect of Inflation

Inflation has not historically been a material factor affecting the
Company’s business. General operating expenses, such as salaries, employee benefits, insurance and occupancy costs are
subject to normal inflationary pressures.

Critical Accounting Policies

Basis of Presentation

The financial statements include the consolidated
accounts of Wilhelmina and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been
eliminated in consolidation.

Revenue Recognition

In compliance with generally accepted accounting
principles in the United States of America, when reporting revenue gross as a principal versus net as an agent, the Company assesses
whether the Company, the model or the talent is the primary obligor. The Company evaluates the terms of its model, talent
and client agreements as part of this assessment. In addition, the Company gives appropriate consideration to other key indicators
such as latitude in establishing price, discretion in model or talent selection and credit risk the Company undertakes. The
Company operates broadly as a modeling agency and in those relationships with models and talents where the key indicators suggest
the Company acts as a principal, the Company records the gross amount billed to the client as revenue when earned and collectability
is reasonably assured, and the related costs incurred to the model or talent as model or talent cost. In other model and talent
relationships, where the Company believes the key indicators suggest the Company acts as an agent on behalf of the model or talent,
the Company records revenue when earned and collectability is reasonably assured, net of pass-through model or talent cost.

13

The Company also recognizes management fees
as revenues for providing services to other modeling agencies as well as consulting income in connection with services provided
to a television production network according to the terms of the contract. The Company recognizes royalty income when
earned based on terms of the contractual agreement. Revenues received in advance are deferred and amortized using the straight-line
method over periods pursuant to the related contract. The Company also records fees from licensees when the revenues are earned
and collectability is reasonably assured.

Advances to models for the cost of initial portfolios
and other out-of-pocket costs, which are reimbursable only from collections from the Company’s clients as a result of future
work, are expensed to model costs as incurred. Any repayments of such costs are credited to model costs in the period received.

Goodwill and Intangible Assets

Goodwill consists primarily of customer and
talent relationships arising from past business acquisitions. Intangible assets with finite lives are amortized over useful lives
ranging from two to seven years. Goodwill and intangible assets with indefinite lives are no longer subject to amortization, but
rather to an annual assessment of impairment by applying a fair-value based test. A significant amount of judgment is required
in estimating fair value and performing goodwill impairment tests.

The Company annually assesses whether the carrying
value of its intangible assets exceeds their fair value and, if necessary, records an impairment loss equal to any such excess.
Each interim reporting period, the Company assesses whether events or circumstances have occurred which indicate that the carrying
amount of an intangible asset exceeds its fair value. If the carrying amount of the intangible asset exceeds its fair value, an
asset impairment charge will be recognized in an amount equal to that excess. No asset impairment charges were incurred during
the three and nine months ended September 30, 2017 and September 30, 2016.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are accounted for at net
realizable value, do not bear interest, and are short-term in nature. The Company maintains an allowance for doubtful accounts
for estimated losses resulting from the inability to collect on accounts receivable. Based on management’s assessment,
the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to the valuation allowance.
Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the
valuation allowance and a credit to accounts receivable. The Company generally does not require collateral.

Income Taxes

Income taxes are accounted for under the asset
and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes
the enactment date. The Company continually assesses the need for a tax valuation allowance based on all available information. As
of September 30, 2017, and as a result of this assessment, the Company believes that its deferred tax assets are more likely than
not to be realized. In addition, the Company continuously evaluates its tax contingencies.

Accounting for uncertainty in income taxes recognized
in an enterprise’s financial statements requires a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. Also, consideration should be
given to de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. There
was no change to the net amount of assets and liabilities recognized in the consolidated balance sheets as a result of the Company’s
tax positions.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not required for smaller reporting company

14

Item 4. Controls and Procedures.

The Company maintains disclosure controls and
procedures designed to ensure that information it is required to disclose in the reports filed or submitted under the Exchange
Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. The
Company’s disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and communicated to
the Company’s management, including its principal executive officer and principal financial officer, or persons performing
similar functions, as appropriate to allow timely decisions regarding required disclosure.

The Company’s management, including the
Company’s principal executive officer and principal financial officer, or persons performing similar functions, have evaluated
the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation,
the Company’s principal executive officer and principal financial officer, or persons performing similar functions, have
concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this
report. During the most recent fiscal quarter, there have been no changes in the Company’s internal controls over financial
reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over
financial reporting.

15

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

On October 24, 2013, a putative class action
lawsuit was brought against the Company by former Wilhelmina model Alex Shanklin and others (the “Shanklin Litigation”),
in New York State Supreme Court (New York County) by the same lead counsel who represented plaintiffs in a prior, now-dismissed
action brought by Louisa Raske (the “Raske Litigation”). The claims in the Shanklin Litigation initially included
breach of contract and unjust enrichment allegations arising out of matters similar to the Raske Litigation, such as the handling
and reporting of funds on behalf of models and the use of model images. Other parties named as defendants in the
Shanklin Litigation include other model management companies, advertising firms, and certain advertisers. On January 6, 2014,
the Company moved to dismiss the Amended Complaint in the Shanklin Litigation for failure to state a claim upon which relief can
be granted and other grounds, and other defendants also filed motions to dismiss. On August 11, 2014, the court denied the
motion to dismiss as to Wilhelmina and other of the model management defendants. Further, on March 3, 2014, the judge assigned
to the Shanklin Litigation wrote the Office of the New York Attorney General bringing the case to its attention, generally
describing the claims asserted therein against the model management defendants, and stating that the case “may involve matters
in the public interest.” The judge’s letter also enclosed a copy of his decision in the Raske Litigation, which
dismissed that case. Plaintiffs retained substitute counsel, who filed a Second and then Third Amended Complaint. Plaintiffs’
Third Amended Complaint asserts causes of action for alleged breaches of the plaintiffs' management contracts with the defendants,
conversion, breach of the duty of good faith and fair dealing, and unjust enrichment. The Third Amended Complaint also alleges
that the plaintiff models were at all relevant times employees, and not independent contractors, of the model management defendants,
and that defendants violated the New York Labor Law in several respects, including, among other things, by allegedly failing to
pay the models the minimum wages and overtime pay required thereunder, not maintaining accurate payroll records, and not providing
plaintiffs with full explanations of how their wages and deductions therefrom were computed. The Third Amended Complaint seeks
certification of the action as a class action, damages in an amount to be determined at trial, plus interest, costs, attorneys’
fees, and such other relief as the court deems proper. On October 6, 2015, Wilhelmina filed a motion to dismiss as to most of the
plaintiffs’ claims, and oral argument on the motion was heard by the Court in June 2016. The Court entered a decision
granting in part and denying in part Wilhelmina’s motion to dismiss on May 26, 2017. The Court (i) dismissed three of the
five New York Labor Law causes of action, along with the conversion, breach of the duty of good faith and fair dealing and unjust
enrichment causes of action, in their entirety, and (ii) permitted only the breach of contract causes of action, and some plaintiffs’
remaining two New York Labor Law causes of action to continue, within a limited time frame. The plaintiffs and Wilhelmina have
appealed the decision. The parties appeared before the Court for a status conference on July 18, 2017, and the Court directed
the defendants to answer the Third Amended Complaint by August 16, 2017. Wilhelmina filed its Answer to the Third Amended
Complaint on that date, and discovery in this action is continuing. The Company believes the claims asserted in the
Third Amended Complaint are without merit, and intends to continue to vigorously defend the action.

On June 6, 2016, another putative class action
lawsuit was brought against the Company by former Wilhelmina model Shawn Pressley and others (the “Pressley Litigation”),
in New York State Supreme Court (New York County) by the same counsel representing the plaintiffs in the Shanklin Litigation, and
asserting identical, although more recent, claims as those in the Shanklin Litigation. On June 14, 2016, the Court stayed
all proceedings in the Pressley Litigation until a decision was issued on the motion to dismiss in the Shanklin Litigation. At
the court conference on July 18, 2017 (mentioned above), the judge directed the plaintiffs to file an amended complaint in the
Pressley Litigation, if any, by August 16, 2017, and directed the defendants to move against or answer such amended complaint by
September 29, 2017. The Amended Complaint, asserting essentially the same types of claims as in the Shanklin action
was filed on August 16th, and Wilhelmina filed a motion to dismiss the Amended Complaint on September 29, 2017. Briefing
on the motion to dismiss is continuing, and the motion is scheduled to be submitted to the Court on November 16, 2017. Discovery
is proceeding in this case. The Company believes the claims asserted in the Pressley Litigation are without merit, and intends
to vigorously defend the action.

In addition to the legal proceedings disclosed
herein, the Company is also engaged in various legal proceedings that are routine in nature and incidental to its business. None
of these routine proceedings, either individually or in the aggregate, are believed likely, in the Company's opinion, to have a
material adverse effect on its consolidated financial position or its results of operations.

Item 1.A. Risk Factors.

Not required for smaller reporting company.

16

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During 2012, the Board of Directors authorized
a stock repurchase program whereby the Company could repurchase up to 500,000 shares of its outstanding common stock. During 2013,
the Board of Directors renewed and extended the Company’s share repurchase authority to enable it to repurchase up to an
aggregate of 1,000,000 shares of common stock.

On August 12, 2016, the Board of Directors increased
by an additional 500,000 shares the number of shares of the Company’s common stock which may be repurchased under its stock
repurchase program to an aggregate of 1,500,000 shares. The shares may be repurchased from time to time in the open market or through
privately negotiated transactions at prices the Company deems appropriate. The program does not obligate the Company to acquire
any particular amount of common stock and may be modified or suspended at any time at the Company’s discretion. No shares
were repurchased during the nine months ended September 30, 2017.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

On November 8, 2017, the Company and Amegy Bank executed a Ninth
Amendment to Credit Agreement and Second Amendment to Line of Credit Note (the “Ninth Amendment”) to be effective
as of October 24, 2107. The Ninth Amendment extends the maturity date of the Company’s $4.0 million revolving line
of credit for one year until October 24, 2018. The Ninth Amendment also increases the fee payable to Amegy upon issuance
of any letter of credit from 1.0% to 1.25% of the face amount of such letter of credit (but not less than $1,000). The foregoing
description of the Ninth Amendment is qualified in its entirety by reference to the definitive agreement filed as an exhibit hereto
and incorporated herein by this reference.

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